Zillow Will Cover Your 3.5% FHA Down Payment. Refinance or Move Before Year Five and You Pay It All Back.

If you can afford an FHA mortgage payment but not the down payment, Zillow will now front the down payment for you. Free, if you stay put for five years. If you don’t, you owe every dollar back at once.

On a $350,000 house, that’s $12,250.

Zillow Home Loans launched the program on October 28. It lends FHA buyers up to 3.5% of the purchase price or appraised value, whichever is lower, as a second loan at 0% with no monthly payment. After five years of on-time payments while you live in the home, it’s forgiven. No income cap. No first-time buyer rule. You need a 640 credit score and enough income to qualify for the full payment, and it’s offered in 43 states and DC, not Arizona, Delaware, Florida, Massachusetts, New York, Rhode Island or Virginia.

“For buyers who can afford the monthly payment, we can now cover the full minimum down payment,” said Eric Wilson, who runs mortgages at Zillow.

Here’s the catch. The second loan is due in full if you move out, sell or refinance before year five. And it only comes attached to “an FHA loan with Zillow Home Loans,” per the company’s own release. You can’t take the down payment and shop the mortgage somewhere else.

Run the $350,000 house. The FHA loan is $337,750 plus the 1.75% upfront mortgage insurance premium, about $343,660 financed. At Freddie Mac’s October 22 average of 7.32%, that’s about $2,361 a month before taxes and insurance. HUD’s annual mortgage insurance on a loan above 95% loan-to-value is 0.55%, so add roughly $155 a month to start. Under 10% down, it never comes off unless you refinance out of FHA.

Now fast-forward two years with flat prices. You’ve paid down about $6,800 of principal. You owe about $336,850 on the first loan plus the $12,250 second. That’s $349,100 on a $350,000 house, before a dollar of selling costs.

Then there’s the refinance trap. Rates are above 7%. If they fall a point in 2028, the move most people would make is a refinance, and that’s exactly what triggers the $12,250 bill.

So is it a good deal? Your call, and it’s a narrow one.

If you’re certain you’ll live there five-plus years and you’d hold the loan through a rate drop, a forgiven $12,250 is real money. If there’s any chance of a job move, or you’re counting on refinancing out of a 7% rate, you’re borrowing your exit plan from Zillow.

Do this before you sign. Get a Loan Estimate for the same FHA loan from at least one other lender, a credit union or your own bank, and compare the rate and lender fees line by line. The assistance only pays off if Zillow’s rate is competitive. Check your state housing agency’s assistance too; National Mortgage News counts 2,833 programs nationwide. And if you can scrape together 6.5% of your own, Zillow lets you stack it on top for 10% down, which drops the annual premium to 0.50% and ends it after 11 years instead of never.

Run your own numbers in our mortgage calculator, and compare lenders on our best mortgage lenders page and the mortgages hub.

The down payment is free on day one. The keys come with a five-year clause.

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